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CBOE to Extend Pilot Program for End of Week (EOW) and End of Month (EOM) Option Expirations_Feb 2013

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CBOE to Extend Pilot Program for End of Week (EOW) and End of Month (EOM) Option Expirations_Feb 2013 Powered By Docstoc
					SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-68933; File No. SR-CBOE-2013-020)

February 14, 2013

Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Renew an Existing Pilot Program for
an Additional Fourteen Months

         Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), 1 and Rule

19b-4 thereunder, 2 notice is hereby given that on February 7, 2013, Chicago Board Options

Exchange, Incorporated (the “Exchange” or “CBOE”) filed with the Securities and Exchange

Commission (the “Commission”) the proposed rule change as described in Items I and II below,

which Items have been prepared by the Exchange. The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

I.       Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule
         Change

         The Exchange proposes to renew an existing pilot program for an additional fourteen

months. Under the existing pilot program, the Exchange is permitted to list P.M.-settled options

on broad-based indexes that expire on: (a) any Friday of the month, other than the third Friday-

of-the-month (“End of Week Expirations” or “EOWs”), and (b) the last trading day of the month

(“End of Month Expirations” or “EOMs”). The text of the proposed rule change is provided

below.

                         (additions are underlined; deletions are [bracketed])

                                              *****

                         Chicago Board Options Exchange, Incorporated
                                            Rules


1
         15 U.S.C. 78s(b)(1).
2
         17 CFR 240.19b-4.
                                              *****

Rule 24.9. Terms of Index Option Contracts
(a) – (d) No change.

(e) End of Week/End of Month Expirations Pilot Program ("EOW/EOM Pilot Program")

(1) End of Week ("EOW") Expirations. The Exchange may open for trading EOWs on any broad-
based index eligible for regular options trading to expire on any Friday of the month, other than the
third Friday-of-the-month. EOWs shall be subject to all provisions of this Rule and treated the same
as options on the same underlying index that expire on the Saturday following the third Friday of
the month; provided, however, that EOWs shall be P.M.-settled.

(2) End of Month ("EOM") Expirations. The Exchange may open for trading EOMs on any broad-
based index eligible for regular options trading to expire on last trading day of the month. EOMs
shall be subject to all provisions of this Rule and treated the same as options on the same underlying
index that expire on the Saturday following the third Friday of the month; provided, however, that
EOMs shall be P.M.-settled.

(3) Duration of EOW/EOM Pilot Program. The EOW/EOM Pilot Program shall be through
[February 14, 2013] April 14, 2014.

(4) EOW/EOM Trading Hours on the Last Trading Day. On the last trading day, transactions in
expiring EOWs and EOMs may be effected on the Exchange between the hours of 8:30 a.m.
(Chicago time) and 3:00 pm (Chicago time). This subsection (4) applies to all outstanding expiring
EOW and EOM Expirations listed on or before May 6, 2011 and all EOWs and EOMs listed
thereafter under the EOW/EOM Pilot Program.

…Interpretations and Policies:

       .01 - .13       No change

                                              *****

       The text of the proposed rule change is also available on the Exchange’s website

(http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange’s Office

of the Secretary, and at the Commission.

II.    Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the
       Proposed Rule Change

       In its filing with the Commission, the Exchange included statements concerning the

purpose of and basis for the proposed rule change and discussed any comments it received on the

proposed rule change. The text of these statements may be examined at the places specified in

                                                  2
Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of

the most significant aspects of such statements.

      A.       Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis
               for, the Proposed Rule Change

               1.      Purpose

       On September 14, 2010, the Commission approved a CBOE proposal to establish a pilot

program under which the Exchange is permitted to list P.M.-settled options on broad-based

indexes to expire on (a) any Friday of the month, other than the third Friday-of-the-month, and

(b) the last trading day of the month. 3 Under the terms of the End of Week/End of Month

Expirations Pilot Program (“Program”), EOWs and EOMs are permitted on any broad-based

index that is eligible for regular options trading. EOWs and EOMs are cash-settled and have

European-style exercise. The proposal became effective on a pilot basis for a period of fourteen

months that commenced on the next full month after approval was received to establish the

Program 4 and was subsequently extended. 5 The Program is scheduled to expire on February 14,

2013. The Exchange believes that the Program has been successful and well received by its

Trading Permit Holders and the investing public during that [sic] the time that it has been in

operation. The Exchange hereby proposes to extend the Program for an additional fourteen

months, so that it will expire on April 14, 2014. This proposal does not request any other

changes to the Program.




3
       See Securities Exchange Act Release No. 62911 (September 14, 2010), 75 FR 57539
       (September 21, 2010) (order approving SR-CBOE-2009-075).
4
       Id.
5
       See Securities Exchange Act Release No. 65741 (November 14, 2011), 76 FR 72016
       (November 21, 2011) (immediately effective rule change extending the Program through
       February 14, 2013).

                                                   3
       Pursuant to the order approving the establishment of the Program, two months prior to

the conclusion of the pilot period, CBOE is required to submit an annual report to the

Commission, which addresses the following areas: Analysis of Volume & Open Interest,

Monthly Analysis of EOW & EOM Trading Patterns and Provisional Analysis of Index Price

Volatility. The Exchange has submitted, under separate cover, the annual report in connection

with the present proposed rule change. Confidential treatment under the Freedom of Information

Act is requested regarding the annual report.

       If, in the future, the Exchange proposes an additional extension of the Program, or should

the Exchange propose to make the Program permanent (which the Exchange currently intends to

do), the Exchange will submit an annual report (addressing the same areas referenced above and

consistent with the order approving the establishment of the Program) to the Commission at least

two months prior to the expiration date of the Program. The annual report will be provided to

the Commission on a confidential basis. Any positions established under the Program will not be

impacted by the expiration of the Program.

       The Exchange believes there is sufficient investor interest and demand in the Program to

warrant its extension. The Exchange believes that the Program has provided investors with

additional means of managing their risk exposures and carrying out their investment objectives.

Furthermore, the Exchange has not experienced any adverse market effects with respect to the

Program.

       The Exchange believes that the proposed extension of the Program will not have an

adverse impact on capacity.

               2.     Statutory Basis

       The Exchange believes the proposed rule change is consistent with the Securities

Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder applicable to the
                                                4
Exchange and, in particular, the requirements of Section 6(b) of the Act. 6 Specifically, the

Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 7 requirements

that the rules of an exchange be designed to prevent fraudulent and manipulative acts and

practices, to promote just and equitable principles of trade, to foster cooperation and

coordination with persons engaged in regulating, clearing, settling, processing information with

respect to, and facilitation transactions in securities, to remove impediments to and perfect the

mechanism of a free and open market and a national market system, and, in general, to protect

investors and the public interest. Additionally, the Exchange believes the proposed rule change

is consistent with the Section 6(b)(5) 8 requirement that the rules of an exchange not be designed

to permit unfair discrimination between customers, issuers, brokers, or dealers.

       In particular, the Exchange believes that the Program has been successful to date and

states that it has not encountered any problems with the Program. The proposed rule change

allows for an extension of the Program for the benefit of market participants. Additionally, the

Exchange believes that there is demand for the expirations offered under the Program and

believes that that EOWs and EOMs will continue to provide the investing public and other

market participants increased opportunities to better manage their risk exposure.

       B.      Self-Regulatory Organization’s Statement on Burden on Competition

       CBOE does not believe that the proposed rule change will impose any burden on

competition that is not necessary or appropriate in furtherance of the purposes of the Act.

Specifically, the Exchange believes that, by extending the expiration of the Program, the

proposed rule change will allow for further analysis of the Program and a determination of how

6
       15 U.S.C. 78f(b).
7
       15 U.S.C. 78f(b)(5).
8
       Id.

                                                 5
the Program shall be structured in the future. In doing so, the proposed rule change will also

serve to promote regulatory clarity and consistency, thereby reducing burdens on the

marketplace and facilitating investor protection.

       C.      Self-Regulatory Organization’s Statement on Comments on the Proposed Rule
               Change Received from Members, Participants, or Others

       The Exchange neither solicited nor received comments on the proposed rule change.

III.   Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

       The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of

the Act 9 and Rule 19b-4(f)(6) thereunder. 10 Because the proposed rule change does not: (i)

significantly affect the protection of investors or the public interest; (ii) impose any significant

burden on competition; and (iii) become operative prior to 30 days from the date on which it was

filed, or such shorter time as the Commission may designate, if consistent with the protection of

investors and the public interest, the proposed rule change has become effective pursuant to

Section 19(b)(3)(A) of the Act 11 and Rule 19b-4(f)(6)(iii) thereunder. 12

       The Exchange has asked the Commission to waive the 30-day operative delay. 13 The

Commission believes that waiving the 30-day operative delay is consistent with the protection of




9
       15 U.S.C. 78s(b)(3)(A)(iii).
10
       17 CFR 240.19b-4(f)(6).
11
       15 U.S.C. 78s(b)(3)(A).
12
       17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) requires a self-regulatory
       organization to give the Commission written notice of its intent to file the proposed rule
       change at least five business days prior to the date of filing of the proposed rule change,
       or such shorter time as designated by the Commission. The Exchange has satisfied this
       requirement.
13
       17 CFR 240.19b-4(f)(6)(iii).

                                                    6
investors and the public interest because it will allow the Program to continue uninterrupted.

Accordingly, the Commission designates the proposal operative upon filing. 14

          At any time within 60 days of the filing of the proposed rule change, the Commission

summarily may temporarily suspend such rule change if it appears to the Commission that such

action is necessary or appropriate in the public interest, for the protection of investors, or

otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the

Commission shall institute proceedings to determine whether the proposed rule should be

approved or disapproved.

IV.       Solicitation of Comments

          Interested persons are invited to submit written data, views, and arguments concerning

the foregoing, including whether the proposed rule change is consistent with the Act. Comments

may be submitted by any of the following methods:

Electronic comments:

      •   Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml); or

      •   Send an e-mail to rule-comments@sec.gov. Please include File Number SR-CBOE-

          2013-020 on the subject line.

Paper comments:

      •   Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and

          Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2013-020. This file number should be

included on the subject line if e-mail is used. To help the Commission process and review your


14
          For purposes only of waiving the 30-day operative delay, the Commission has considered
          the proposed rule change’s impact on efficiency, competition, and capital formation. 15
          U.S.C. 78c(f).

                                                  7
comments more efficiently, please use only one method. The Commission will post all

comments on the Commission’s Internet website (http://www.sec.gov/rules/sro.shtml). Copies

of the submission, all subsequent amendments, all written statements with respect to the

proposed rule change that are filed with the Commission, and all written communications

relating to the proposed rule change between the Commission and any person, other than those

that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be

available for website viewing and printing in the Commission’s Public Reference Room, 100 F

Street, NE, Washington, D.C. 20549 on official business days between the hours of 10:00 a.m.

and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the

principal office of the Exchange. All comments received will be posted without change; the

Commission does not edit personal identifying information from submissions. You should




                                                8
submit only information that you wish to make available publicly. All submissions should refer

to File Number SR-CBOE-2013-020 and should be submitted on or before [insert date 21 days

from publication in the Federal Register].

        For the Commission, by the Division of Trading and Markets, pursuant to delegated

authority. 15



                                                   Kevin M. O’Neill
                                                   Deputy Secretary




15
        17 CFR 200.30-3(a)(12).

                                               9

				
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Description: CBOE to Extend Pilot Program for End of Week (EOW) and End of Month (EOM) Option Expirations_Feb 2013